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Setting up a lifestyle business in Bali is indeed attractive. However, it tends to get difficult for a lifestyle business in Bali to follow the minimum capital requirements set up for foreign-owned companies.
Nonetheless, there are several main challenges of starting a lifestyle business in Bali but with that come the solutions for the most common scenarios. There are also ways for you to live in Bali as a digital nomad and even hire local staff without having a company.
Lifestyle Business in Bali
Common activities of lifestyle businesses in Bali are a perfect balance of mindfulness with productive business and setting life into perspective.
Some of the common business activities foreigners often conduct in Bali are:
- Food and beverage related business (restaurants, workshops, cookbook launches etc.)
- Recreation and leisure activities (yoga, surfing, diving, golf)
- Clothing design and distribution
- Cosmetics import and sales
- Spiritual health, holistic and wellness services
Challenges of Lifestyle Businesses
Foreign-owned limited liability companies (PT PMA) must follow the Indonesian Investment Law which among others sets up the following minimum requirements:
- Investment of at least Rp10 billion (US$800,000).
- Minimum paid-up capital Rp2.5 billion.
- Limitations to the maximum foreign ownership depending on the business classification (many limitations in hospitality).
- Not enough revenue.
- Indonesian Investment Coordinating Board (BKPM) requires foreign-owned companies to present investment for at least Rp10 billion (US$800,000), a minimum of 25 per cent of the investment must be paid up as capital. For most lifestyle businesses, Bali is not realistic to meet these criteria.
In addition, if you’re setting up a PT PMA for several business classifications, you must show how the company plans to earn
the revenue equal to the amount of four times the investment, for example, Rp40 billion within the first year of operation. Showing such a realistic income plan is hard to even for medium-sized companies and usually impossible for smaller lifestyle businesses.
One Investment Requirement per Business Classification
In Bali, there are several limitations on the business classifications that can be registered under one PT PMA. For example, the manufacturing and distribution business cannot be registered under one PT PMA, and two separate entities must be registered. This is a serious challenge for lifestyle businesses where often many different small activities are run.
Furthermore, even if some business classifications can be registered under one PT PMA, the minimum investment requirement of Rp10 billion is applicable per business classification. Hence, for registering two business classifications, the total investment must be Rp20 billion. This affects companies in Bali regardless of whether their business activities are related to each other or not.
Alternative Solutions to Setting Up a PT PMA
Unless your lifestyle business will require large scale investments, there are better solutions for doing business on the island.
Nominee Company
This is a company where the shares are pledged and you have full control over the company through a set of agreements. The registered shareholders are Indonesian people or entities. The set of legal agreements makes the nominee company a legal and safe way to have complete control over a company. Since the nominee shareholders will be local entities, your company does not have to follow the requirements set to large scale businesses.
Examples of industries where nominee companies are common, including restaurants and cafés, surf and diving centres, yoga studios and hospitality businesses.
Using companies as nominee shareholders and proper set of agreements will protect your interests in a much safer way of collaboration, rather than trusting local individuals to act as nominee shareholders having control over your company. That would be risky as they could walk away with your assets at any time, or difficulties arise if they die or divorce.
Registering a PT PMA in One Industry
PT PMA can conduct all business activities within the business field once approval has been made. But looking at a lifestyle business’ perspective means that there are a few restrictions which shed a better light to a nominee company.
For example, the below business activities cannot be combined with others under one PT PMA. This means that a separate PT PMA must be formed in industries, such as trading, manufacturing, retail and hospitality.
PT PMA suits well for foreign companies and investors looking for full or partial ownership in a company. Setting up this entity is most suitable for large scale companies where the field of industry is determined. Due to the high minimum capital requirement and the industry restriction, as shown above, many foreign investors in Bali opt for a nominee company instead.
Common Myths Regarding Business in Bali
We have gathered a collection of myths, some of which you may have heard as well, based on the numerous discussions we had with our clients in Bali:
- Foreigner Cannot be a Director of a Local Company. Indonesian laws prohibit foreigners to be directors of the local company thus it must have a local director. Other than that, the local company may also have a foreign director if certain conditions have been fulfilled.
- Local Companies Cannot Issue Work Permits to Foreigners. The ability to issue work permits depends on the size of the capital of the company.
- Local Companies Pay Fewer Taxes. The taxes are the same for locally owned and foreign-owned limited liability companies.
- Having a Local Partner Makes Company Registration Process Faster. Having a local partner does not have any effect on the duration of the company registration process. As long as there is at least one foreign shareholder, the company is considered as a foreign-owned company and the requirements for foreign-owned companies apply.
- Local PT and PT PMA Can Only Issue a Limited Number of Work Permits to Foreigners. Foreign directors and commissioners will get 12-month work permits in Indonesia, regardless of the ownership structure of the company. For other positions, the company needs to demonstrate that the position cannot be filled by a local person and the term of the working permit is the discretion of the immigration, which its minimum validity of the work and stay permit is six months.
A Digital Nomad in Bali
Digital nomads or location independent expatriates are a common sight in Bali. As long as you are not employed by an Indonesian company or earn revenue in Indonesia, it’s fairly easy to stay and work remotely in Bali.
Staying in Bali
A list of countries is allowed to have their citizens travel to Bali with visa exemption for 30 days. If you plan to stay longer, you have a choice between Social Visa or Business Visa.
Visa-related paperwork may sometimes seem extensive for foreigners. Emerhub handles requests for visa and work permits daily, and can assist with obtaining and extending the above visas in a timely manner.
Social Visa
A Social Visa is valid for 60 days upon entry. This visa can be extended into four 30-day extensions with the total maximum stay of six months. To apply for a social visa, a sponsor letter is necessary from an Indonesian sponsor, such as Emerhub. The key limitations of a Social Visa are that you need to extend it every month and it is cancelled once you leave the country.
This is given for these following purposes:
- The visit of a family member or relative in Indonesia.
- The visit of a social organisation in the same field you are operating in.
- Exchange visits for training and education purposes in Indonesia.
- Lecturing, joining a non-commercial conference or seminar in a social or governmental field.
Business Visa
A multiple-entry Business Visa is issued for one year and allows the holder to stay in the country for 60 days per visit. You can then re-enter Indonesia with the same visa for unlimited times.
The purposes of a Business Visa are the following:
- Discussing matters of trade transactions.
- On spot observation and discussions on trade terms (import-export business).
- A business activity where a person is not engaged as an employee.
- Attending to international shows and exhibitions.
- Attending meetings by a head office or representative in Indonesia.
- Discussing with Indonesian enterprises over capital or commodity production by overseas enterprise.
- Investigating commercial possibilities of capital investment with possible partners in Indonesia.
- A journalistic visit.
- To make a film for non-commercial purposes.
The key decision is, therefore: do you plan to only stay in Indonesia or do you also plan to visit other countries during your stay? If the former, then get the Social Visa, whereas if you choose the latter, then go for the Business Visa.
Representative Office and KITAS
If you want to have legal presence in Indonesia but don’t need to earn revenue locally, then one of the simplest ways is opening a representative office. A representative office represents a foreign company in Indonesia but does not undertake commercial activities.
Similarly, to a PT PMA, a representative office can apply for limited stay permits (KITAS) for its foreign executives. You will be able to legally stay and work in Indonesia and also hire local and foreign staff.
Hiring Locals Without a Company
Growing out from an independent digital nomad into an entrepreneur with a team and then finding qualified labourers can be a challenge. However, one of the simplest ways to hire a local team is using staff augmentation service. No legal presence is required with staff augmentation, and you don’t need to worry about employment law. All of it is taken care of by Emerhub.
This service is commonly used for conducting market research, selling products, finding and meeting suppliers or distributors, and hiring local engineers and other experts.
Triin Tigane is the Branch Manager of Emerhub Bali and has been assisting people to start their business for nearly three years. Having a legal background in M&A, commercial and corporate law, restructuring and insolvency as a lawyer, Triin has experience working with companies all around the world. Feel free to drop her an email [email protected] if you have any questions.
See: Building Joglo: The New Craze in Bali Property
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